It originated in Hindustan almost 2,000 years ago, long before the emergence of a modern Western banking system. The word "hawala" is of Arab origin. In Arabic, it means a receipt, barter and even just trust. In banking jargon, it also means "transfer". In India and Pakistan, hawala exists under the name "Hindu”, in China — "fei chien", in Thailand — "fei kuan" in the Philippines — "fell", and in Somalia — "ksa-vilaad".
What is #hawala, and how does it work? In fact, this is alternative banking, which is built on a system of mutual clearance between brokers (hawaladars). For example, a US resident wants to transfer money to his family in India. He brings them to the hawaladar in America, pays a small commission. Hawaladar gives out a unique code in return, according to which the mother of a resident of the United States can get money from a local #hawaladar in India. The next time a broker in India will ask a colleague from the US about a counter-request for the same amount. It is the simplest scenario, but in most cases, everything is more complicated. A broker in India can send an application to a colleague in the UAE. Later, that broker sends it to China, and finally, the application will reach the United States. At the same time, #money doesn’t leave the country physically, operations are anonymous, and the whole system is built on the trust of all participants. According to the FATF, there are about 5000 hawaladars in the world today.
But you may ask: what's oriental bazaar got to do with it? Most of hawaladars are gold merchants, and they work in the bazaars. Let’s suppose that the brokers’ balance failed. This situation is common as money from America to India or from the UAE to Pakistan is transmitted much more than to the opposite direction. In this case, the balance is closed with the help of the goods — precious metals. The supplies of precious metals are carried out by the most ordinary air travel.
You have probably heard the scandalous last year story about the arrest of Reza Zarraba for trading Iranian oil with Turkey, bypassing US sanctions? So, their the payroll schema was very close to hawala. Thus, Turkey paid gold for oil, which was later exported by several executives in suitcases on flights to the UAE. Then the principle of hawala was in action. The executors handed gold to a broker in the Emirates, and a broker in Iran gave cash to the recipient. The calculations between brokers were made later either by the system of mutual clearance or by personal meeting in the UAE. Good thinking, isn’t it?
By the way, in the Western world the word "hawala" is derived from the term "aval" meaning the possibility of reselling debt. This principle was banned under the Roman law, but it became widespread in Medieval Italy, which was active in trade with the Islamic world. The principle of mutual clearance in Western banking also exists. It was called clearing, or compensatory transactions. The essential difference, however, is that only legal entities have the right to engage in clearing, and the activity itself is subject to mandatory licensing. In the eastern world, hawala, in general, is used for carrying out shadow #transactions.
The principle of the hawala makes it virtually invulnerable to the supervisory authority. Therefore, experts agree that there is no sense to ban hawala. In 2002, the Deputy Director of the International Monetary Fund (IMF), Mohammed El-Korci wrote in his article "The Hawala System" that while people have reasons to use hawala, these systems will exist.
Today hawala has been widely used all over the world by people from India, Pakistan, Iran, and many Arab countries, compensating for the poorly developed and expensive banking system of these regions. Most often, hawaladar clients are immigrants who don’t want to and can’t overpay for #commission and wish to remain anonymous.
Perhaps the most reasonable way to cooperate with hawala is to motivate brokers to use it only for peaceful purposes and not to make calculations between criminals (for example, between members of terrorist groups). If the turnover of the hawaladars remains high, they will hardly risk their reputation for conducting criminal transactions.
Another way of cooperation is to improve the legal systems of international money transfers, making them quick, accessible, anonymous and with a minimum commission. The project AraneoBit offers this system of transactions, which is inspired by the principle of hawala in many ways. Startup suggests creating a global web of users around the world that will make #moneytransfers with the help of chat-bot in popular instant messengers, without commission and on the principle of mutual clearance. We will fix all transactions using the popular protocol of blockchain.